What happened with the over-the-counter bulletin board?
In short, the OTCBB was merely an electronic quotation service that the Financial Industry Regulatory Authority (FINRA) provided to members for OTC (over-the-counter) trade data for US stocks. Where the OTCBB electronic service differned from your standard OTC platforms was that it was solely a quotation service and nothing more. (1)U.S. Securities and Exchange Commission."Release No. 34-90067; File No. SR-FINRA-2020-031."
By Nov. 8, 2021, FINRA officially halted all OTCBB operations. This was due to the fact that most of the OTC stock trading was happening on the OTC Markets Group’s platforms, making OTCBB all but redundant. (2)Financial Industry Regulatory Authority."FINRA Announces Closure of the OTC Bulletin Board."
How OTCBB worked
In a nutshell, the OTCBB service gave traders useful up-to-the-minute data on volume information for equity securities traded over the counter. They also provided quotations on last-sale prices as well. If you were using the OTCBB platform, you were required to file an up-to-date financial statement with the SEC or another financial regulatory body.
The OTCBB was created in response to the Penny Stock Reform Act of 1990. The SEC were told that they needed to develop an electronic quotation system for stocks that couldn’t be listed on major markets. Stocks that were traded over-the-counter were traded between retail investors and market markets via computers and phones. (3)U.S. Congress."S.647 - Securities Enforcement Remedies and Penny Stock Reform Act of 1990"
OTCBB stocks traded with less frequency than your standard exchange-listed stocks which meant that theri bid-ask spreads were generally larger. The OTC stocks that you could find on the OTCBB were small and as such were noittreaded on the major exchanges. Overall, there were only a limited number of OTCBB stocks that were transferred from OTC Markets to major exchanges in the end.
Things to consider about OTCBB
The reason that OTCBB served a genuine purpose was because they provided a trading avenue for smaller companies who could not meet the requirements to trade their securities on national exchanges. The OTC markets gave these companies an important outlet to sell their securities and grow financially.
It was a symbiotic relationship between these small companies and inventors. These companies needed investors if they were ever going to grow in size and investors could still make a decent return on investment by trading through the OTC markets.
While it may appear at face value that OTC markets trade like national exchanges, they do not. Remember, these OTC markets only served as quotation services and not as actual exchanges. You could only trade over-the-counter if you were subscribed to the service. The market makers would trade the securities by inputting different quotes and trades through a secure computer network.
How OTCBB ultimately became redundant
We have now already touched on the fact that OTCBB has become somewhat redundant, as all OTC stock quotes and trades are now done through the OTC Markets Group’s platforms. These include the likes of Pink Open Market, OTCQX and OTCQB.
With the FINRA ruling in 2021, the operations of OTCBB were ceased, officially signalling their exit from the markets. In a like for like trade, the OTCQB was effectively taken over from the original OTCBB as the main market for OTC securities. With no minimum financial standards, the OTCQB will regularly include penny stock, small foreign issuers and shell companies.
What is the difference between OTCBB and pink sheets?
Well, the main similarity between the two of these two is that they both serve as quotation services for stocks that trade over-the-counter. A key difference, however, is that OTCBB was operated by FINRA whereas pink sheets are operated by a private company. There is a quality difference between, that is for sure. Its become apparent that the security listings with the pink sheets are subpar, as many of them would not have even made it on to the listings on the OTCBB.
You could always trust that the securities listed on the OTCBB were registered and regulated by the SEC whereas there are many securities with pink sheets that do not file regular reports and may not even list themselves with the SEC at all.
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